Novanta Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Novanta delivered above expectations for the third quarter, with revenue reaching a record $248 million, surpassing guidance. New product revenue grew nearly 60% year-over-year, and customer bookings grew 17% year-over-year and 4% sequentially.
• Focus on growth platforms in medical technologies, consumables, and embedded software, with 20 new products launched year-to-date in these areas. Believes these growth platforms offer an additional $4 billion end market opportunity by 2030.
• Investing in regionalized manufacturing, deploying the Novanta growth system and a new ERP system, and advancing an acquisition pipeline to expand into medical technologies, consumables, and embedded software.
• Strong performance in Advanced Surgery with high teens double-digit growth, Robotics and Automation with sequential revenue growth, and Precision Manufacturing showing building momentum.

Segment Performance

• Automation Enabling Technologies: Revenue declined 3% year-over-year, in line with expectations. Book-to-bill was 0.96, but bookings were up 15% year-over-year. Adjusted gross margins were above 48%, approximately flat year-over-year, driven by factory productivity and favorable product mix. New product revenue nearly doubled year-over-year, and customer design wins grew 30%.
• Precision Manufacturing: Saw a year-over-year revenue decline of 7% in the quarter, but had sequential growth of 3% and double-digit growth in both bookings and design wins, demonstrating building momentum.
• Robotics and Automation: Revenue was roughly flat year-over-year and grew 3% sequentially. Continues to see solid outlook with resiliency in demand for advanced robotic applications and strength in short-cycle semiconductor applications tied to data center investments.
• Medical Solutions: Revenue up 6% year-over-year. Book-to-bill was 1.1 in the third quarter, with bookings up 19% year-over-year and 14% sequentially on the back of record new product launches. New product sales in the quarter grew by over 40% year-over-year. Advanced Surgery business experienced 17% growth year-over-year. Precision Medicine sales declined 4% year-over-year but grew sequentially.
• Advanced Semiconductor: Represents roughly 10% of revenue, with early signs of an upcycle expected for wafer fab equipment in mid-single digits next year.
• Life Science Equipment: Saw sequential revenue growth in the third quarter, with investments in intelligent RFID solutions and advanced machine vision technology to support momentum.

Guidance

• Fourth quarter 2025 GAAP revenue expected to be in the range of $253 million to $257 million, representing year-over-year organic revenue growth of 3% and reported revenue growth of 6% to 8%.
• Full year 2025 GAAP revenue expected to be approximately $975 million to $979 million, representing roughly flat organic growth for the full year and 3% reported revenue growth.
• Adjusted gross margins expected to be approximately 46% in both the fourth quarter and the full year.
• Adjusted EBITDA in the fourth quarter expected to be in the range of $62 million to $65 million. Full year 2025 EBITDA expected to be $222 million to $225 million.
• 2026 expected to achieve mid-single-digit organic growth based on sequentially improving demand environment.

Risks

• Macro-economic and trade environment impacts on business performance.
• Tariff costs and their impact on gross margins, although efforts to mitigate are ongoing.
• Volatility in end market dynamics affecting segments like Precision Medicine.

Question and Answer

Q: Lee Jagoda of CJS Securities asked about the robotics retail customer contract and humanoid robotics products. Matthijs Glastra responded that there was a design win with a large e-commerce player for warehouse automation, in early stages with deployment starting in 2026 and growing thereafter, and discussed products like force/torque sensors and position sensors relevant to humanoid robotics.

Q: Rob Mason of Baird inquired about 2026 growth dynamics across businesses. Robert Buckley stated Advanced Surgery and Robotics and Automation are trending positively, Precision Manufacturing is sequentially improving, and Precision Medicine has volatility but is factored into the 2026 baseline. Matthijs Glastra added that new product launches in 2025 will continue to build momentum and long-term growth markets are early in adoption.

Q: Brian Drab of William Blair asked about DNA sequencing, EUV/DUV, and warehouse automation. Matthijs Glastra said DNA sequencing is not counted on for growth, EUV timing is early, and warehouse automation has bookings and revenue ramping with the Robotics and Automation business having healthy margins.